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Senin, 30 Mei 2011

ASEAN: Metals & Mining: Coal - CLSA

Coal prices/stocks have corrected; turning Neutral; Harum to CL-Buy

Coal prices have corrected, stocks have underperformed...
Newcastle thermal coal prices have corrected 17% since reaching the peak in Jan 2011. Meanwhile, coal-to-oil ratio (on heat equivalent basis) has declined sharply from 32% to 21% (historical average, 22%) and coal stocks have underperformed the market by an average 11% over the same period.

...but further downside may be limited
We believe further downside to coal prices may be limited as (1) China and India’s seaborne interests may re-emerge due to decline in Newcastle coal prices (arbitrage between China and Newcastle coal prices is nearing break-even), (2) rising oil prices may provide further support to coal prices.

Oil upgrade prompts higher coal prices; raise stance to Neutral
We raise our 2011E-13E coal price forecasts by 5%-14% on the back of recent revision of Brent oil forecasts by our global oils team. Historically, coal prices have been more correlated with oil (91% correlation) than own supply demand. Hence, despite easing thermal coal supply (we estimate a surplus thermal coal market in 2012E-13E), we think coal prices may inch towards higher levels next year on rising oil prices, but coal may lag the oil rally. Our new 2011E-12E forecast of US$115/t-US$120/t compares with spot price of $116/t. We raise our sector stance to Neutral from Cautious.

Raising earnings, 12-m TPs; rolling forward to 2012E valuations
Our higher coal price forecasts have led to us increasing our sector net income estimates for 2011E-2013E by -2% to +57% (partly offset by higher costs given rising oil prices). We also roll forward our Director’s Cut-based target prices to 2012E and raise our 12-month target prices by 8%-31%.

Upgrade Harum to CL-Buy; Adaro to Neutral
We upgrade Harum (HE) to Buy (on CL) from Neutral. HE is the fastest growing stock in our ASEAN coal universe – three-year 2010-13E volume CAGR of 31% vs. sector average of 15%. HE’s cash returns are also the highest with 2012E CROCI of 122% (sector average, 40%), supported by its greenfield mine development strategy. However, valuations are attractive and the stock is trading at 5.5X 2012E EV/EBITDA (vs. sector average of 6.3X). We raise Adaro to Neutral (prior Sell) given the stock’s underperformance. We maintain Buy on ITMG and Sell on Bumi. We remove SAR from Conviction List on earnings upgrade, but maintain Sell.

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